Borrowing, not tax hike, subject of referendum

First Posted:

By Mark Guydish [email protected] Reporter

WRIGHT TWP. – Why a referendum? The short answer: Because the law says so.
Actually, it involves three laws.
Two are different sides of the same coin. In certain circumstances, they require school boards to ask voters to approve either a specific tax hike or a specific amount to be borrowed. The third law sets a fixed debt ceiling for all school districts that can be exceeded only if voters agree. Here’s a breakdown:
The state law known as “Act 1” says school districts can’t raise property taxes in a single year beyond a state-set “index” without voter approval. Locally, the index tends to range from 4 to 7 percent. If the district wants voter approval, it must hold a referendum in the spring primary before a budget goes into effect in July. Crestwood School District voters
will not
be voting on that type of referendum Feb. 3. This is where the second law comes in.
Act 1 allows a district to raise taxes beyond the annual index without voter approval if the added money is used to pay off “electoral debt,” or in plain speak, debt approved by voters. Electoral debt falls under the “Local Government Unit Debt Act,” which sets the rules on how to get voter approval. That is the type of referendum on the ballot.
So, strictly speaking, the referendum is not about taxes. All it asks is whether a voter wants the district to borrow up to $55,750,000 “for the purposes of financing” additions and renovations at the high school. Theoretically, the district could borrow the money and not raise taxes.
As a practical matter, the board has repeatedly pointed out that if the money is borrowed, taxes will rise. The latest estimates predict an annual increase ranging from about $62 for a property worth $50,000 to $374 for one worth $300,000.
Using the Debt Act helps the district avoid problems with the third law, which limits district debt to 225 percent of income. It’s slightly more complicated than that, and the calculations shift year by year, but roughly speaking, Crestwood’s total budget of about $30 million creates a debt ceiling of about $67 million.
The district already has about $21 million in debt, so if it borrowed the $55 million sought in the referendum this year, it would probably exceed the debt limit by $9 million. But “electoral debt” isn’t counted toward the limit. So if voters approve the Feb. 3 referendum, the board can borrow the money without bumping into the legal ceiling even while going above it.
By choosing to use the Debt Act, the board gets other restrictions and options. If voters approve the borrowing:
• The district can’t borrow any more money for the project, at least not without voter approval.
• The district can’t use the money for anything other than the high school project unless voters approve the new use.
• The district can raise taxes beyond the state index in any future year without voter approval if the money from that tax hike is used to pay this debt. It’s worth stressing that if that happens, once the debt is paid taxes must be reduced by the same amount.
• The district must borrow the money within 10 years of the vote.
• If voters reject the referendum, “another election for the same purpose may not be held until 155 days have elapsed since the prior election,” according to the Debt Act. In the meantime, “no bonds or notes may be issued … for such purpose.”